Econ 2100 Chapter 4 Lecture Notes

Chapter 4: The Market Forces of Supply and Demand
Sunday, February 14, 2021 2:59 PM



• Competitive markets
○ Several sellers with similar products
○ Single buyer or seller doesn't determine price and quantity sold
 Instead determined by al buyers and sellers in the market
 Seller doesn't want to lower price and usually can't raise price due to similar sellers goods at competitive
prices
 Each buyer's impact negligible alone
○ Perfectly competitive markets
(1) Goods offered for sale all exactly the same
(2) No single buyer or seller has any influence over the market price due to how numerous they are

= they are price takers (accept price market determines). But the quantities bought and sold are
up to them.
 EX.
□ Wheat market
□ Eggs market

○ Monopoly market
(1) Only one seller

(2) Seller sets the price
 EX.
□ Local table television if only one company in community to choose from
□ Tap water if only one company in community to choose from

• Demand
○ Quantity demanded
 Amount of good buyers willing and able to buy
 Effected by good's price
□ = Law of demand
 When price of good rises, quantity demanded of the good falls
 Visa versa
 (while all other factors that affect how much consumers want to buy are held constant.)
○ Demand Schedule Graph









 Price on y axis
 Quantity (demanded) on x axis
 Demand Curve downward slope
 Individual demand
□ Shows individual demand by Catherine for ice cream cones at different prices

,  Market demand
□ Shows sum of all individual demands in market




□




○ Shifts of demand curve
 If something other than the price changes
□ For price changes, just move along D curve
 Shifts if quantity demanded is altered
 Shifting left and right




□




 Normal Good
□ Demand for good falls when income falls
□ Visa versa
 Inferior Good
□ Demand for good rises when income falls
□ Visa versa
□ EX.s
 Bus rides
 Cab rides
 Substitutes
□ When a fall in the price of one good reduces the demand for another good, the two goods are called
substitutes.
 EX. Buying cheap frozen yogurt instead of more expensive ice cream that is similar
 EX.s
◊ Hotdogs and hamburgers
◊ Sweaters and sweatshirts
 Complements
□ When a fall in the price of one good raises the demand for another good, the two goods are called